St. Louis Cardinals: The Qualifying Offer Under the New CBA

Last night, the MLB owners and players’ union reached an agreement on terms of a new collective bargaining agreement just before the December 1st deadline. What does this mean for the St. Louis Cardinals?

Pushed to the brink of a potential lockout, the MLB owners and MLB players’ union finally held productive meetings which allowed the two parties to come to terms on a new CBA. One change was to the qualifying offer system for pending free agents, and this will impact how the St. Louis Cardinals pursue free agents both now and in the future.

Under the previous CBA, a qualifying offer could be extended to a pending free agent who was with a team for the full previous season. The offer would be a one year contract with a dollar value equal to the average of the top 125 player salaries from the previous season. Teams had until five days after the World Series to make a qualifying offer, and the player (“QO free agent”) had seven days to accepts.

If the QO free agent decided to reject the qualifying offer, the offering team (“offering team”) would receive a compensatory first round pick, while the team which ended up signing the player (“signing team”) would forfeit a first round pick. Therefore, the cost of signing a QO free agent was a combination of the dollar value of the contract signed and the opportunity cost resulting from the lost draft pick.

The New Qualifying Offer Free Agency Structure

Under the new agreement, which will come into effect during the 2017-2018 offseason, some rules regarding the qualifying offer will remain the same under the new CBA. Players must play for one team for the entire season to gain eligibility, and the salary for the one year offer will still be an average of the top 125 player salaries from the previous year.

One major difference resides in the draft pick compensation that the offering team will receive if the QO free agent rejects the offer and signs elsewhere.

This change is substantial: if the offering team loses the QO free agent, the offering team will only receive a compensatory draft pick if that player signs a contract worth more than $50 million. The pick that the offering team receives will depend on its market size.

Another key change is associated with the draft pick cost of signing a QO free agent. The pick(s) forfeited also depend on the team’s market size.

If the signing team exceeds the luxury-tax threshold, it will lose a 2nd round and 5th round pick, as well as $1 million in international bonus pool money (which is now capped around $5 million per team). If the signing team is below the luxury-tax threshold, it will lose a 3rd round pick.

Free Agency and Trade Deadline Consequences

These changes will have consequences on how teams, including the St. Louis Cardinals, pursue free agents and how they value players at the trade deadline during the season.

Effectively, the new deal reduces the cost of signing a QO free agent, since the signing team will retain its first round pick. This cost is more severe for teams paying the luxury tax, which will give smaller market teams an advantage in pursuing QO free agents.

Further, this deal reduces the benefit of extending a qualifying offer to a pending free agent. Rather than receiving a definite first round pick if the QO free agent signed elsewhere, the team will receive a pick depending on its market size, or potentially not receive a pick at all.

For players who do receive a qualifying offer, they will likely face difficulty negotiating longer-term contracts. Since the signing team will effectively be compensating the offering team if they sign the QO free agent to a deal worth greater than $50 million, they will be more conscious to avoid exceeding that threshold.

For example, instead of offering a five-year deal worth $60 million, the signing team might offer a four-year deal worth $48 million. This strategy would allow the signing team to avoid giving compensation to the offering team. These deals would negatively impact QO free agents’ long-term financial security and total earnings.

If players were unwilling to accept a shorter contract, signing teams would likely offer a lower average annual value (AAV) over a longer contract. A player might be forced to choose between a four-year deal with an AAV of $10 million and a five-year deal with an AAV of only $8 million. Both of these deals would be worth $40 million total, but obtaining long-term security would come with an AAV sacrifice.

At the trade deadline, teams which are “selling” players who would be QO eligible at the end of the season have a new worst-case alternative. It is possible that they would receive no draft pick compensation if the QO free agent signs elsewhere. If they received draft pick compensation, it might be lower than a first round pick. Ultimately, this would push bubble teams to sell at the deadline and capture some value for their player in a trade.

How does this impact the St. Louis Cardinals?

For the St. Louis Cardinals, this has an immediate effect on how the front office is likely to treat free agency this offseason. It will also likely change the front office’s strategy when pursuing free agents in the future.

In the immediate sense, the new QO rules will limit the scope of free agents the St. Louis Cardinals are willing to pursue. This is because the draft pick cost of signing a QO free agent this year is less than the draft pick cost will be next year.

This will either negatively impact the contracts the Cardinals would be willing to offer QO free agents this offseason or knock them off their board entirely. Now, players like Justin Turner and Dexter Fowler might be totally written-off by the St. Louis Cardinals front office.

For the future, this change could have two different effects on the St. Louis Cardinals free agent approach. One possibility is that the front office will be unwilling to sign QO free agents to larger contracts due to the risk of compensating rival teams with a draft pick. The front office has made it clear in past seasons that they take draft pick compensation into account when determining what they are willing to offer QO free agents.

Another possibility is that it would open the door for the St. Louis Cardinals to be more aggressive in their pursuit of free agents. Without the fear of losing a first round pick (and, in most years, the likelihood of only losing a third round pick), the front office might be willing to offer free agents more money and more years.

Ultimately, the changes to the QO free agency structure appear to be focused on giving players more flexibility in free agency over the course of their careers, and achieving a more balanced competitive landscape. The two-tiered cost system dependent upon the luxury-tax threshold ensures big market teams who pay up for QO free agents will do so at a higher penalty than smaller market teams.

The effect this has on the St. Louis Cardinals approach to the current offseason remains to be seen. However, with the winter meetings scheduled to begin on December 5th, the front office might soon make their strategy clear.